Spatial Pricing in the United States, West Germany and Japan

Abstract

This paper investigates the spatial pricing policies of a sample of firms in the United States, West Germany and Japan. We begin in Section I by providing general results for the three countries. These suggest that f.o.b. pricing is the exception rather than the rule. Furthermore, there appear to be significant differences between the countries in the degree of spatial price discrimination. The remainder of the paper examines whether the inter-country differences in spatial discrimination can be explained by a theory of spatial pricing. Section II uses the theory of spatial pricing proposed in Greenhut and Greenhut (1975) to derive an operational model. In Section III the parameters of this model are estimated from the individual country data and the results are discussed. Section IV presents the conclusions. The data used in this were obtained from a survey of firms in the three countries. In each country target regions were selected with (a) similar urban-rural proportions, as restricted by (b) existing acquaintanceships with professors in or near these urban-rural centres. Survey constraint (b) was imposed after a mailed questionnaire pilot study in the United States had indicated a likely need for follow-up mailings, phone calls and even interviews before a sufficient number of responses from a particular place (e.g., a particular state in the United States) could be expected. After selecting our comparable survey areas, firms were picked at random from industrial lists of business establishments in each country, and questionnaires were mailed to them. The questionnaire is reproduced in the Appendix. The firms that returned questionnaires were compared to non-responding firms. No distinction in size of firm, industry type or location was apparent for any country or sub-region studied. Among the respondents, we dropped from the sample all firms that were not subject to a significant cost (defined to be a 5 per cent minimum freight cost to delivered cost ratio on sales to at least one distant market point). Our findings on pricing strategies are summarized in Table 1. Firms in the United States tend to price discriminatorily. Of 174 sampled firms, less than one-third priced non-discriminatorily (f.o.b.). The spokesmen for the remaining firms (67 per cent) admitted that they did not add full cost to their mill price on all of their distant sales. These firms therefore priced discriminatorily. The tendency to price discriminatorily is even greater in West Germany and Japan, with the percentage of discriminating firms approximately

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